Bank regulators ease up on maximum loan levels - loan-to-value regulations go from mandatory to suggested levels

Real Estate Weekly, Nov 18, 1992

Industry lobbying efforts paid off when federal banking regulators changed their proposed maximum loan-to-value regulations from mandatory to suggested.

Expected to go into effect in March of 1993, the new rules were written by the nation's four regulatory agencies -- The Federal Deposit Insurance Corporation, Federal Reserve, Office of the Comptroller of the Currency, and the Office of Thrift Supervision -- under a 1991 mandate. Draft proposals, one of which was loan-to-value ratio, were issued in June.

"It's a slight distinction, but a very important one," said Cary Brazeman, spokesperson for the National Realty Committee, which was instrumental in the change.

As the plan now reads, Brazeman said, a borrower's credit worthiness, cash flow from the property and other elements can be considered as reasons for exceeding the suggested limits.

Ceilings now recommended by the regulators in their proposal are: 65 percent for raw land; 75 percent for land development; 80 percent for non-residential construction; and 85 percent for one- to four-family residential construction and improved property loans. A maximum was not placed on residential mortgages or home equity loans where the borrower obtains private mortgage insurance. The new guidelines would also not apply to restructured loans.